Commodity weakness persists

The first two instruments represent two base metals and their respective futures curves. Contango is defined as far month contracts selling higher than near term contracts. It is generally not an enviable condition. Backwardation is a condition where the far out contracts are less expensive than the near term contracts.

demand and supply dynamics are largely in excess supply but are specific to each commodities unique dynamic

The futures curve is mostly in contango although there are portions of each unique commodity that are in backwardation.

Weak technical indicators persist

Down approximately 5% 1yr

This group represents a mix of equity commodity producers.

SPDR S&P Metals and Mining ETF XME

Weak fundamentals

Weak technical indicators-1 yr time frame

Sharpe, Treynor and Information Ratio are all negative for a 3yr time frame

Standard deviation is 30 for the last 3 yr time frame

Down over 17% 1yr

Market Vectors Coal Index ETF KOL

Weak fundamentals

Weak technical indicators-1 yr time frame

Sharpe, Treynor and Information Ratio are all negative for a 3yr time frame

Standard deviation is 33 for the last 3 yr time frame

Down over 26% 1yr

Market Vectors Rare Earth Strategic Metals ETF

Weak fundamentals

Weak technical indicators-1 yr time frame

Sharpe, Treynor and Information Ratio are not available for the last 3yr time frame

Standard deviation is not available for the last 3 yr time frame

Down over 34% 1yr

Zenith recommends that wealth management firm investment committees take the time to examine the dynamics of each portion of the commodity complex. While it is not a definitive indicator 100% of the time, a weak commodity complex can be indicative of waning global demand and potentially weak risk assets.

We will update as the base metals complex show signs of fundamental strength in aggregate cash flow and supply demand dynamics become more favorable. Until then, continue to hold near the bottom end of established ranges for commodities.